EU’s Carbon Import Tax Proposal Won’t Affect Trade Relations With India: Climate Policy Chief

Frans Timmermans, the climate policy chief of the European Union, reassured on Friday that the EU’s planned carbon tax would not harm its trade ties with India, reported PTI. Timmermans is on a two-day visit to India and expect to meet with several cabinet ministers to discuss developments on emission reductions and clean energy transition ahead of COP28 in Dubai later this year.

According to the report he emphasised the EU’s commitment to abide by the rules of the World Trade Organisation (WTO).

“If India fulfills all its ambitions in terms of greening the economy and reducing the carbon footprint and creating comparable footprints to the EU, there is no worry that CBAM will have a negative effect on our trade relationship,” Timmermans said at a press briefing.

As part of its comprehensive climate strategy, the European Union (EU) intends to introduce a carbon import tax ranging from 25 to 30 per cent on high-carbon goods. These goods include steel, cement, aluminum, iron, fertilizers, electricity, and hydrogen. However, this move has raised concerns about the potential impact on developing nations that heavily rely on carbon-intensive industries.

India is reportedly set to challenge the EU’s proposed carbon tax at the WTO.

The EU’s initiative, known as the Carbon Border Adjustment Mechanism (CBAM), is set to be implemented in a transitional phase starting in October. The CBAM is designed to support the EU’s efforts to reduce carbon emissions and promote the adoption of environmentally friendly practices among its member countries. By incentivising carbon reduction, the EU aims to create a greener and more sustainable future.

According to PTI, Timmermans, who is also the executive vice president of the European Commission, told reporters that one of the reasons why India is considering emissions trading systems is to avoid getting hit by the EU’s CBAM. CBAM has only one goal and that is to avoid carbon leakage.

Carbon leakage can arise when producers shift base to jurisdictions with less stringent climate policies.

“And if India makes progress, as it is doing now, into the direction of having a carbon footprint that is comparable to that of EU producers, then India will be under CBAM, but it will not face any penalties. It is the comparability of carbon footprint that counts. Secondly, we will have this trial period (October 2023 to December 2025) that will allow us to see whether there are undesired effects, then we can correct it… And we will be in very close contact with India to see what the effects are,” Timmermans said, adding it was too early to worry about the impact of penalties on Indian businesses.

Timmermans suggested using the India-EU Trade and Technology Council to have a constant dialogue on this issue.

He added that the EU does not intend to create a situation that would be perceived as protectionist and it will do nothing that will be a violation of the WTO rules, the report said.

Asked whether the EU and India will take forward the proposal to phase-down all fossil fuels at COP28, Timmermans said parties should focus on the reduction of all unabated fossil fuels.

“It is not our intention to single out coal. Our intention is to address all fossil fuels. Obviously, some are more polluted than the others, and some are already phasing out in some parts of the world… So, to reach consensus, the best place is what India has proposed — target all unabated fossil fuels,” he said.

If it’s a struggle for us at the level of development we are in the EU, certainly it’s a struggle for countries like India. But at the end of the day, we will have to reduce our carbon footprint.

Timmermans said the Global Stocktake (GST) is expected to reemphasize and tell that the world is not on track to limit global warming to 1.5 degrees Celsius as compared pre-industrial (1850-90) levels.

“We need conversation on how we get on target. The only way to do this is reducing emissions,” he said.

Also Read: Sun Pharma Q4 Results: Mumbai-Based Firm’s Net Profit Rises To Rs 1,984 Crore On Robust Sales

The Global Stocktake (GST) is a periodic process that allows countries and stakeholders to assess their collective progress in achieving the goals of the Paris Agreement, which aims to limit global warming to 1.5 degrees Celsius above pre-industrial levels. The GST occurs every five years, providing an opportunity to evaluate where progress is being made and where there are gaps or challenges.

The first-ever stocktake is scheduled to be completed at the upcoming UN Climate Change Conference (COP28) at the end of this year. During this conference, participants will review the actions taken by countries and assess whether they are on track to meet the targets set in the Paris Agreement. The GST serves as an important milestone to understand the global efforts to addressing climate change and to identify areas that require further attention and action.

At COP28, the EU climate envoy said, he expects some progress on loss and damage and reforming international financial architecture in which India plays a major role.